Relative effects of labor taxes on employment and working hours: role of mechanisms shaping working hours

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• 作者：Been-Lon Chen ; Chih-Fang Lai
• 关键词：Search and match ; Tax ; Hour bargaining ; Unemployment ; Hours ; E24 ; J22
• 刊名：Journal of Economics
• 出版年：2016
• 出版时间：January 2016
• 年：2016
• 卷：117
• 期：1
• 页码：49-84
• 全文大小：840 KB
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• 作者单位：Been-Lon Chen (1)
  Chih-Fang Lai (1)
  
  1. Institute of Economics, Academia Sinica, 128 Academia Road Section 2, Taipei, 11529, Taiwan
  
• 刊物主题：Economics general; Economic Theory; International Economics; Microeconomics; R & D/Technology Policy;
• 出版者：Springer Vienna
• ISSN：1617-7134

文摘

High labor income taxes are one of the most important explanations advanced for the large decline of labor supply in Europe over the past 30 years. While in some countries the decline comes evenly from employment and hours per worker, in others it comes mostly from hours per worker, or predominantly from employment. This paper studies why labor taxes have different relative effects on employment and hours per worker. We show that different hour-shaping mechanisms are one of the underlying reasons. In the mechanism when hours per worker are bargained by matched job-worker pairs, a higher labor income tax would reduce both employment and hours per worker. As the worker’s hour-bargaining share is larger, hours per worker are decreased by more and employment is decreased by less. In the mechanism when hours per worker are determined exclusively by the household, this goes to the case when the worker has a one-hundred percent hour bargaining power. In this situation, when the leisure utility is linear in hours, the effect on employment is zero and all negative effects are on hours per worker. At the other extreme, in the mechanism when hours per worker are effectively regulated, a higher labor tax only reduces employment with a zero effect on hours. We calibrate the model and show that the quantitative effects of Europe’s increases in average effective tax rates in the past 30 years are consistent with the theoretical predictions. Keywords Search and match Tax Hour bargaining Unemployment Hours